Trillion-dollar market sends shockwaves through Wall Street! Legendary Goldman Sachs CEO warns: Private credit risks are very similar to the eve of 2008

According to Zhitong Finance, the former CEO who led Wall Street giant Goldman Sachs through the financial market's darkest period during the 2008 financial crisis is now warning about the lack of transparency and hidden leverage in private credit, joining a group of seasoned Wall Street analysts who have expressed significant concerns at a critical juncture for the industry. The former Goldman Sachs CEO pointed out that hidden risks in the private credit market could plunge the United States into another financial crisis. He likened the current crisis signs in the nearly $1.8 trillion private credit market to those preceding the subprime mortgage crisis in 2008, emphasizing that hidden leverage and liquidity risk cannot be overlooked.

Recently, the U.S. private credit market has been hit by repeated negative news. Over the past few weeks, the market has seen Blue Owl’s retail credit fund restrict redemptions and dispose of assets, industry concerns over valuation transparency and liquidity pressure intensify, and growing panic over “AI disrupting everything” fears that artificial intelligence might hit software sector balance sheets and worsen related private credit asset quality. On the data side, Fitch disclosed at the end of February that the U.S. private credit default rate is expected to rise to 5.8% by January 2026, while Morningstar DBRS has maintained a negative outlook for the sector. In other words, the main logic behind the recent spate of bad news in the private credit market centers around simultaneous pressure on liquidity, valuation, and certain sector exposures.

“It seems to be one of those moments again,” said former Goldman Sachs CEO Lloyd Blankfein in an interview with Citadel co-Chief Investment Officer Pablo Salame, referring to the global financial crisis. “I don't feel a superstorm, but the horses in the paddock are starting to neigh,” Blankfein added. Blankfein helmed Goldman Sachs from 2006 to 2018.

Recently, several seasoned Wall Street professionals have expressed concerns over risky lending and hidden high leverage in private credit. At the end of last year, two companies related to private credit abruptly declared bankruptcy, prompting several Wall Street commercial banks to disclose massive write-downs and further stoking fears that major problems in the sector could spill over into the global financial markets.

The troubles in the mortgage market triggered a financial crisis that caused global stock markets to plummet and plunged the U.S. economy into the worst recession since the Great Depression. Some Wall Street bankers are increasingly worried that the scale of the private credit market is now comparable to the 2008 subprime market and may carry similar risks of rapid contagion.

Dimon’s Cockroach Theory

Some industry insiders have already spoken out publicly about their concerns. JPMorgan Chase CEO Jamie Dimon warned last year that following those bankruptcies linked to private credit, finding one “cockroach” usually means there are more cockroaches quietly appearing. Late last month, Dimon said some of the top experts in the financial industry are “doing some stupid things,” which reminded him of the years before 2008.

Blankfein echoed Dimon in an interview, warning about some ignorant and reckless behavior in the industry. “The market’s been very good for a very long time,” he told The Big Take podcast in an interview. “If everything is fine, no cost, no adverse consequences, you gradually lose discipline.”

He warned that as Wall Street commercial banks and the Trump administration push to open private markets to ordinary Americans, financial risks are rapidly escalating. Proponents argue that allowing private equity in 401(k) plans will improve retirement account returns and help savers enjoy a more comfortable retirement. Opponents warn that illiquidity, opacity, and complexity make private assets unsuitable for most investors, and including them in 401(k) plans exposes retirement savers to greater investment risks rather than more opportunities.

Blankfein commented: “I would say that the consequences of mistakes or major issues in the accounts of retirees—which means ordinary people, taxpayers, voters—are more severe than credit losses impacting the portfolios of complex institutional investors and wealthy, high-net-worth qualified investors. In other words, the impact of missteps or problems in the accounts of retirees (real people, citizens, taxpayers, voters) is more severe than credit losses suffered by complex institutional clients and wealthy, high-net-worth investors.”

Recently, concerns about private credit have centered around another hot topic: artificial intelligence. As the market increasingly fears that AI is about to disrupt industries, software stocks have suffered a rare blow this year. This has further pressured the valuations of the long-standing coalition between private credit funds and software companies, with private asset managers such as Blackstone, KKR, and Blue Owl Capital holding significant exposure to software firms.

Private Credit Market Sees a Series of Shocks

Some investors have started to rush for the exit, sparking worries over liquidity. Last month, Blue Owl restricted the ability of investors to pull funds from its private credit fund. Earlier this week, Blackstone only allowed investors to redeem nearly 8% of its flagship private credit fund. Reportedly, the company and its employees invested around $400 million of their own capital to fulfill $3.8 billion in redemption requests.

On Thursday, media reported that the world's largest asset manager BlackRock marked down the value of a private loan from 100% of face value to zero—just three months earlier, the loan was still marked at par. This marks the second recent instance of a sudden “wipeout” in its private credit division. According to TCP Capital Corp., a BlackRock affiliate, in its Q4 filing last week, an approximately $25 million loan to Infinite Commerce Holdings is now worthless—Infinite Commerce is one of the so-called “Amazon aggregators,” acquiring online sellers for all kinds of goods from spa products to light bulbs. In the third quarter of last year, this junior debt was still marked at par.

These moves have intensified market concerns regarding defaults and underwriting standards in the $1.8 trillion private credit market. The sector’s heavy bets on software companies threatened by AI agents this year have already led anxious investors to submit unprecedented redemption requests.

Over the past decade, the global private credit industry has rapidly expanded to $2 trillion in size, but it now faces multiple challenges: overvaluation and lack of transparency have triggered market doubts; unconventional practices by institutions like Blue Owl, such as using “promised payments” in exchange for client redemptions, have deepened the trust crisis; and last year’s wave of bankruptcies among U.S. auto parts suppliers and subprime auto lenders has further exposed some participants to significant risk concentrations.

Blackstone President Jon Gray said in a program interview on Tuesday that the wave of redemptions is due to media “constant cycle,” which makes investors anxious. He added: “Right now there is a disconnect between what's happening in the underlying portfolio and what's happening in the news cycle.” Gray further noted that institutional clients continue to allocate large amounts to private credit, and said that the companies in its loan portfolio are performing strongly.

Gray acknowledged that not every loan in a portfolio will work out and that non-investment-grade credit inherently comes with risk. “But it’s the fundamentally low-leverage nature and solid performance of these loans that allow them to stand the test of time,” he concluded.

From both market behavior and structural pressures, several major private credit funds have shown signs of redemption limits, cash flow strains, and asset sales. Blue Owl Capital, for example, permanently limited some redemption rights and sold assets to pay investors, sparking market concerns about liquidity mismatch and valuation transparency, and dragging related asset manager stock prices lower—highlighting a notably increased market sensitivity to structural risk. Recently, liquidity problems, redemption pressure, and poor performance on loans exposed to high-leverage sectors like software have all become focal points of market attention in private credit.

From a systemic risk perspective, although these events have prompted warnings from regulators, investors, and some experts, they do not currently mean a full-scale financial meltdown like 2008 is inevitable. Unlike the complex derivatives crisis sparked by subprime mortgages back then, current problems are more concentrated in local risks such as illiquidity, lack of transparency in valuation, and leverage build-up in the private credit market. While the market is large (about $1.8 trillion), it does not yet compare to the global banking system in terms of interconnectedness or the proliferation and complexity of derivatives. Most analysts believe that if risks spread, it will be through wider credit spreads, repricing of risk assets, and stress events in individual assets or funds, rather than a full-blown systemic collapse.